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Open House

How to be Debt-Free in 2008; Dress for Success Without Breaking the Bank; What's in the Housing Market Forecast for the New Year?

Aired January 05, 2008 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BETTY NGUYEN, CNN ANCHOR: Yeah, because Iowa was huge for Barack Obama. He mentioned that. I mean, you look at the actual numbers, though. We think about, Hillary came in third in that. How big of a deal is this for her? But when you look at the numbers, what do they truly mean?
JOSH LEVS, CNN CORRESPONDENT: You know what? It's so interesting to be playing out of that with this spin that we're hearing. Because I'm going to show you really quickly here, is that actually three democrats made history in Iowa this time. If you want to understand what happened, particularly on that side, take a look at these numbers.

First, I'm going to shoot you back to 2004 so you can understand what I'm talking about. Four years ago, when the race happened there, it was the biggest turnout ever. John Kerry got 38 percent of 125,000 people. Right? Well, this time around, let's take a look at the numbers, the top three all got more support in the Iowa caucuses than any Democrat ever has in all of history.

You got Obama, Edwards and Clinton all listed right there. The big chunk of a huge turnout, which means, these three people galvanized more support than anyone ever has in Iowa ever before. Not the same for Romney. Romney got fewer votes than Bush did back in 2000.

NGUYEN: All right Josh, thank you for that. And OPEN HOUSE with Gerri Willis starts right now.

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.

Coming up, how to get out of debt and stay out of debt in 2008, we'll show you step by step. Then dress for success without breaking the bank. But first, it's a new year, but is it the same old bleak story for the housing market?

Mark Zandy is the chief economist with Moodyseconomy.com. He's joining us from Westchester, Pennsylvania.

Welcome, Mark.

MARK ZANDY, MOODYSECONOMY.COM: Thanks, Gerri.

WILLIS: So, tell me about this report you put out that says the housing market is as bad as it was during the Great Depression. ZANDY: Yeah, it is in terms of home sales, housing starts and particularly house price declines. This is as bad as it's been since that Great Depression. Now, we're not in the same league as the depression...

WILLIS: Not by a long shot. Right, I mean, look, Mark, I mean, come on, we don't have unemployment through the roof. There are lots of big differences, right?

ZANDY: Oh, yeah. I don't mean to put it in the same league. But, we've not seen anything like this since that time. It's that bad.

WILLIS: All right. OK. Well, let's talk about '08 and what we can look forward to. Is this the year the market turns around?

ZANDY: No, this may be the year it bottoms out. I think it's going to be a tough six, 12 months. We're going to see sales decline further, construction and particularly house prices decline in many parts of the country. So, I really think it's '09 before we start to see activity pick up to any significant degree.

WILLIS: And by that you mean sales, correct?

ZANDY: Yeah, I think sales probably will bottom out this spring, construction in the summer/fall, but prices probably not until the end of the year, maybe even early '09 and it won't be until '09, 2010 before sales, construction and prices start to rise again.

WILLIS: Wow, that's a long time to wait for a lot of people out there. Let's talk, though, about some of the markets out there that are really going to get hit the worst coming up this year. What is in your crystal ball?

ZANDY: Well, obviously, Florida is a mess, all parts of the state are struggling. California, Nevada, Arizona, parts of D.C., around New York City, Long Island, particularly Boston, the industrial Midwest. Those are the areas that are the hardest hit where price declines peak trough will be over 10 percent.

WILLIS: Those are also the places where prices actually went up quite a bit, right?

ZANDY: Yeah, that's when the boom was its most frothy. And it's obviously where the bust is most significant. When we get through it all and it's all said and done, I think people who bought into the housing market beginning in late '04, '05 will have gone nowhere. People who bought after that period are under water, so the declines are quite significant. But you're right, that's the area where the boom was most pronounced.

WILLIS: Yeah, let's be realistic, some of those markets saw gains of 100 percent or more, so you know, if you fall back 20 percent, what were you expecting ultimately? I think there's a greed factor going on here, too. ZANDY: Yeah, like Las Vegas. I mean, prices are doubled in a couple, three-year periods, so hopefully you bought in before the top of the market and if you did, you're in pretty good shape.

WILLIS: All right, let's talk about places that have maintained value. What areas have done the best?

ZANDY: Texas is fine, no problem; the Carolinas doing OK; the farm belt, the farm economy is strong; parts of the Pacific Northwest OK, although things are slowing a bit more recently. Those are the areas where prices are still rising.

WILLIS: All right. You know, I want to ask you more broadly about the economy because you are an economist, after all. You know, consumers under pressure here, obviously, with their mortgages, you know, what's going on in the housing market, but also because of consumer prices. I'm sure you saw this week, oil prices went through 100 bucks a barrel, it's going to be pretty soon it comes to gas prices. What's your outlook for consumer spending?

ZANDY: It's going to slow significantly. In fact, I think growth in '08 will be as slow as it's been since the early 1990s. And you put your finger on some of the reasons why. Gasoline prices are high and they're certainly going to rise. Food prices are up, job market is weaker, obviously house prices are down and it's harder to borrow against your home. Stock market is going nowhere fast. You know, all these things are conspiring to weigh on consumers, particularly lower to middle income houses, they're under a lot of pressure.

WILLIS: Mark, thanks so much for your help, today. We appreciate it.

ZANDY: Thanks, Gerri.

WILLIS: Up next on OPEN HOUSE, how to get out of debt for good. We'll show you how. Then how to save big without compromising your lifestyle, and it doesn't have to cost a fortune look like a million bucks. We'll show you how to dress for less. But first, your "Tip of the Day."

(BEGIN VIDEOTAPE)

WILLIS (voice over): Air conditioning is the last thing on people's mind this time of year, but maybe it shouldn't be. Installing a central air system in your home in the winter months is a great deal.

Winter can be a slow time for contractors. Talk to a contractor soon and you can get as much as 20 percent off. But, if you are in the market for a window or free-standing AC unit, hold off. Most companies have rebates on last year's models from March to June.

That's your "Tip of the Day."

(END VIDEOTAPE) (COMMERCIAL BREAK)

WILLIS: First come the holiday greeting cards, then the holiday bills. Add that to the $9,900 of credit card debt that most families already have, and you may be over your head in debt. But, the New Year is the perfect time to regain control of your finances.

Lynnette Khalfani Cox is the author of "Zero Debt." And in Washington, D.C., Ric Edelman, author of "The Lies about Money." Welcome to you both.

AUTHORS: Thank you for having us.

WILLIS: All right, let's start with essentials for getting out of debt. What are the first steps?

LYNNETTE COX, AUTHOR, ZERO DEBT: Plan one is, step one is to make a plan to make sure that you know how many months and for some people, unfortunately, how many years it might take you to knock out the debt. If you racked up, say, $6,000, then you think, hey, 500 bucks a month will get you out of debt in '08. You don't want this to drag out.

WILLIS: You know, that interest rate keeps on ticking, you keep incurring those charges. It can be a self-sustain prophecy. Rick, you say some folks just want to complain about their debt, they don't even want to get out of it.

RIC EDELMAN, AUTHOR, THE LIES ABOUT MONEY: Unfortunately, it's all too true. You want to get out of debt: quit spending money! There's a good start.

WILLIS: Yeah, that works.

EDELMAN: Too many of us are spending money that we don't have to buy things we don't need for people we don't like who don't want the gifts we're buying them in the first place. Let's get a grip and recognize that thinking about it isn't going to solve the problem, you've got to take action.

WILLIS: You've got to take action. You know, though, everybody says, and how many times have I heard this? Don't make the minimum payment on your credit card. OK, that's one idea. Are there others?

COX: Well, the minimum payment thing, let's not gloss over that. That's huge, you know, when I had $100,000 in credit card bills alone, I was making minimum...

WILLIS: I need to talk to you about how you got that.

COX: Three years I paid off that debt and I never once missed a payment. One of the things that I did is I started tripling up on those payments because minimum payments, now in the short run, really mean maximum payments in the long run. But you've also got to negotiate. Call up your credit card companies and ask for a lower rate, because if you can knock down those finance charges that'll save you money in the long run and you'll knock out the debts faster, too.

WILLIS: You really got to think about this problem, right, Ric? I mean, it's got to be a priority in your life. You almost need like a guardian budget angel to, you know, bring with you every time you are in the shopping mall, wherever you are spending.

EDELMAN: You're right, you've got to think about it all the time. It's not enough to write it down as a New Year's resolution and file it away. You've got to be living it, breathing it, thinking about it all the time. Every time you go into a mall, every time you go into Starbucks, every time you go to a movie theater and thinking about popcorn. Every time you are in an environment where you might be spending money, you've got to tap that angel on your shoulder and say: wait a minute, well, is this expense part of my plan?

COX: And sometimes that angel may be a buddy, like you said, it might be a friend or a spouse who says, listen, let's curb the spending here. That's the person who's going to keep you honest and accountable when you say, you really want to get out of debt? Prove it. Show me by your spending habits.

WILLIS: I want to get you to some really important points that I know you like to make on this topic. There are times where it's not just the Christmas debt. You have more debt than that. It's actually a very big problem. Maybe 15 percent of your annual income is debt, it goes to paying off debt. Now you know you are in a problem scenario. Do you go to a credit counselor? What do you do?

COX: Well, you know, that I talk about this in "Zero Debt," because I think most need to start by doing it themselves, by negotiate with their lenders, by seeing if they can work out deals, that kind of thing. But some people do need help and they shouldn't feel ashamed or embarrassed or guilty about that. There are certainly credit counseling services, non-profit agencies. I recommend that people go to HUD certified credit counselors. But you've got to check these places out. You know, go through the Better Business Bureau, even Google the name...

WILLIS: Some of these people are scam artists. I mean...

COX: No question about it.

WILLIS: I mean, some of these folks are not there with your best interest at heart. Do you think that's a great stop if you're just in over your head?

EDELMAN: Well, I think basically you've to be really careful. Once you go on the path of a formal debt elimination program with one of these third party agencies, you can't change your mind, you can't stop or you'll make the situation worse. So, you've got to have some seriousness and maturity behind the motivation.

WILLIS: All right, "zombie debt." Tell us about "zombie debt."

COX: Well, zombie debt is old debt that sort of comes back from the grave to haunt you. You know, you might have thought you had debts written off in bankruptcy court or maybe charged off from creditors from years ago and all of a sudden, a debt collector comes back five, six, seven years that debt's been passed and they're saying, pay us money or do a settlement with us. Consumers need to know their rights, they need to know there are statutes of limitation and most states it runs between three and seven years. If your debt is over the seven years...

WILLIS: That means they can't come back to you if it's three to seven years old?

COX: Legally they can't. Correct.

WILLIS: It's gone, wiped out?

COX: Correct, but you know what? These zombie debt collectors, they buy the debt for pennies on the dollar, they figure if they can get you to settle up and pay even 50 cents on the dollar, they've made a great profit. So, you need to know the game, you need to know the system and you also need to know your rights, because there are laws that protect you, the Fair Debt Collection Practices Act is one of them and it gives consumers 10 areas of protection.

WILLIS: Well, we'll talk about that more a little later. Lynnette, Ric, stay with me because, coming up from debt to savings, we want you to make a financial turnaround this year. We'll talk about different ways to save that really pay off.

And dressing on a budget without sacrificing style, the hidden savings you can find in department stores.

But first, your mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: OK. We just talked about how to get out of debt. Once you are free and clear, let's talk about the best way to put money away and actually build up your savings, start really building wealth. Still with us, Lynnette Khalfani Cox and Ric Edelman. Welcome back to you both, thanks for all this help, today. We're working you overtime, I think.

All right, so let's talk about getting that savings together, actually putting it to work. What's the best place to go to invest?

EDELMAN: Well, there's no question that the first place you should be saving is your retirement plan at work, whether you have a 401K, 403B or any other kind of employer plan, that's the best place to start. The money is tax deductible, it grows tax deferred, but the best part is, it's painless, it's invisible because your employer takes it right out of your pay.

WILLIS: Rick, don't forget, there's free money. There's free money, there. You know, your employer is going to pony up some dough, too. And what's amazing to me, Lynnette, is that lots of folks out there just don't do it. COX: They don't do that and they don't realize the opportunity that they are foregoing, here, because listen, if you save $1 and your employer gives you $1 match, that's getting 100 percent return on your investment. You're not get that any place else on Wall Street.

WILLIS: Unfortunately, I don't think that majority of us get that much, the majority don't.

COX: Some people do.

WILLIS: But 50 cents on the dollar, even, you know, that kind of thing.

All right, so you know, I know out there there's some great resources. I know Ric, you talk about when you first started saving there was nothing on the Web for you, right? I mean, doing your research was tough, but now that's not the case.

EDELMAN: It really is, 20 years ago when I started, there was no CNN, there was no outlet for people to get financial education. Now, there's a huge amount of resources, not only Lynnette's book, but mine, as well, as well as all the Web sites and magazines and wonderful television shows like this that give me a lot of education. It's easy to get the knowledge, today, more than ever before.

WILLIS: And I want to say, we've got some Web sites up right here, Ric. Choosetosave.org, Norningstar.com, I mean, look at this, lots of names of places to go for great investments. I think people, though, can be intimidated. You know, let's face it, mutual fund investing is not for everybody, but there are ways to do it.

EDELMAN: If you simply spend paper currency and collect the coins, without even trying, you'll say $20 or $30 a month without even thinking about it.

COX: You can also make it automatic, you know? If you are getting a regular paycheck every week, every two weeks, why not divert some of that right into your savings account, make it automatic. If you don't see the money, you won't miss it, chances are you can't spend it. Right?

WILLIS: Well, that's probably one of the biggest mistakes out there. You know, people just like don't put the amount of money away that they need to. What are the other big investment mistakes that people make out there?

COX: Oh, there's a ton, you know, in terms of not having a strategy from the outset and thinking that, OK, I'm going to buy the hot stock for the year or the best mutual funds of, you know, "X" year, and that, I think, is really missing the big picture. You know, it's really about asset allocation and not thinking about the individual components of your portfolio, but about the picture.

EDELMAN: And this is -- you are exactly right. And this is why it's so important that you look long-term. Don't make the mistake of following today's trend in today's news because today is fleeting. In my best seller, "The Lies about Money," I show you that common mistake that people make and show you how to fix it, building a long-term investment strategy that will help you really achieve your goals.

WILLIS: You know, Ric, I think it's interesting, I think people really lose perspective on the markets. I talked to somebody the other day saying, oh, the stock market, it's doing so poorly. Last year we were in the plus column and I think people completely lose track of that.

EDELMAN: Well, those are the two emotions that will get you into trouble. So, we need to recognize that this too shall pass and if you have a 20-year time horizon for your kid's college or your own retirement, focus on that, not today's news.

COX: You know, the interesting thing is that there are parallels between the stock market and the housing market in terms of people's perceptions and expectations. You're right, 2007 we had a six percent gain overall in stocks. But, people were expecting 10, 15, 20 percent. Same way that they did with housing when prices were going up 20 percent a year, that's just not sustainable.

WILLIS: You know, it is all cyclical out there and I think, you know, we have to keep that in mind. You know, I know that online is a great place to go. If you are just trying -- let's say you aren't worrying about your 401K today, you just want to set aside a savings account, let's talk just briefly about -- there are banks online where you can get a great return, right, Ric? I know this is a favorite of yours. We want to show a few of these places to the folks out there, as well, so you can see some great places to go -- Ric.

EDELMAN: Yeah. ING has a wonderful "Orange Account," they call it. There are other competitors that have similar offerings and they're all available online. It's an online bank instead of a brick and mortar bank. And they're able to offer higher yields simply because they don't have bulletproof glass with a teller behind it, so their costs are lower and they can pass it along to you in the form of higher yields. Very convenient, very safe, FDIC insured and you will get double, triple, quadruple the rate of return than you get on your normal checking account.

WILLIS: Ric, I want to thank you for your help, today. Lynnette, thanks so much, too. Great information, great advice.

All this talk about saving, what if I told you there was a way to get free -- yes, free -- money. Well, the good news is you may have access to it and have never even thought about it. If your employer offers you a 401K retirement savings plans, most will match a portion of your savings with company money, usually about 50 cents on the dollar up to six percent of your salary. Well, there's no better way to get starting putting together funds for retirement.

And managing a 401K, hey, these days it isn't as hard as it used to be. New investments called Life Cycle Funds manage your investments over time for you taking into consideration how old you are and when you want to retire. If you truly want to set it and forget it, consider Life Cycle Funds. Now, if you don't have access to a 401K, consider opening a Roth IRA or a regular IRA. Exchange traded funds can offer plenty of diversity in your investments without making tons of investment choices. These funds track broad market indexes here, and every overseas, at relatively lower costs.

For more information on managing your retirement accounts, check out Cnnmoney.com.

As always, if you have an idea on how to get out of debt or ways to save money, send us an e-mail to openhouse@cnn.com.

Coming up, in the spirit of saving in the New Year, we'll show how to dress to impress on a budget.

But first, this week's "Local Lowdown."

(BEGIN VIDEOTAPE)

WILLIS (voice over): Central Vermont, hit the slopes in the morning and taste the local sweets in the afternoon. The pride of Vermont, maple syrup. Stop by one of the many farms for traditional buckets of wood fires are used to make 100 percent pure maple syrup.

Or head to the Ben and Jerry's factory in Waterbury where you can actually take a tour and sample some of Vermont's finest. But, don't forget to squeeze in some time in the snow. Vermont's Green Mountains are renowned for their snowy peaks. Bundle up, though, temperatures often dip to around five degrees.

That's your "Local Lowdown."

(COMMERCIAL BREAK)

(BEGIN GRAPHIC)

Americans spend approximately $345 billion a year on clothing and shoes.

(END GRAPHIC)

WILLIS: OK. So, sticking to a budget is tough and one of the easiest ways to blow it is at the mall. But, our next guest says it doesn't have to be that way. Kathryn Finney is the author of "How to be a Budget Fashionista."

(BEGIN VIDEOTAPE)

WILLIS: Well OK, you've some great advice here, I really want to get to it. You say get the basics in your wardrobe first. And you brought us some examples, here. The all-black suit, it goes with everything.

KATHRYN FINNEY, AUTHOR, HOW TO BE A BUDGET FASHIONISTA: All- black suit. And the great thing about an all-black suit is you can wear it as many times as you want and people won't know. It's a basic, neutral color.

WILLIS: Neutral is good when you go shopping.

FINNEY: Neutral is good.

WILLIS: And, obviously, you don't want to go to the most expensive store in the place.

FINNEY: Exactly, you don't actually have to. You can get a suit like this from JCPenney's for $200. Great suit, perfect, high quality, just as good as a $1,000, $2,000 suit out there.

WILLIS: Hey, I'm a Loehmann's fan. You know, I got to tell you, these places, they have great labels and for less money. Here's another one here. You say 70/30 rule. Now, what does that mean?

FINNEY: The 70/30 rule, now, if you are on a budget you can't have your whole entire closet full of trendy items, that wouldn't make sense.

WILLIS: And they are out of fashion in one season, right?

FINNEY: Exactly, so you want to have 70 percent of your closet classic pieces, like the black suit, and 30 percent trendy, fun pieces because you don't want it all to be like sort of basic, you want to have some fun, a little top pop in there.

WILLIS: Now Kathryn, people out there, they're spending $1,000 on purses. I think that's crazy. Why do people do that? It seems like you blow your entire wardrobe budget on extras like that. What do you recommend?

FINNEY: Well, you know what? Purses have become sort of like the new BMW. So, you don't have to do that...

WILLIS: And they cost as much.

FINNEY: Cost just as much. So, what I recommend is looking for inspired versions of that bag. So, there's great sites like Overstock.com, Smartbargains.com, as well as Baghouse.com where you can find great versions of those top high-end bags for much, much less, up to 80 percent off.

WILLIS: Wow, I'm taking notes in my head, here. OK, so let's get to your idea about dry cleaning. OK, I don't know if I agree with you here. Once a year?

FINNEY: Once a year. Actually, my family used to own a dry cleaners.

WILLIS: So, you know the secrets.

FINNEY: So, I know all the secrets. I know exactly what they do. You are actually not supposed to dry clean suits that often because the more you dry clean it, the harsher it is on the fabric...

WILLIS: They're using chemicals.

FINNEY: It's a chemical called PERK and that PERK sort of eats away at your fibers. So, the best thing to do is get like a bottle of Febreeze and just squirt it down every so often to keep it fresh.

WILLIS: Well, that's a great idea. You know, I wish they would invent Granimals for adults.

FINNEY: Exactly.

WILLIS: Do you remember that, line? Everything worked with everything else. The big problem now is you buy clothing and it doesn't match anything else. How do you reduce those costs?

FINNEY: Well, the way that you reduce the cost is gain, focusing on the basics. So, you have your neutral colors, your blacks, your grays, you know, your browns and then get some fun, sort of, trendy pieces in there to add a little pop to it. But focus on the basics first. You can wear those over and over again and no one will know.

WILLIS: All right, what are your favorite stores?

FINNEY: Oh, that's so hard. That's like choosing children. I absolutely love TJ Maxx and Marshalls, I'm a big huge fan. I love Nordstrom's, of course, but when they have the sales.

WILLIS: Only the sales.

FINNEY: Only the sales, that's the only time I go there.

WILLIS: Otherwise forget about it.

FINNEY: Yes. I love Target or tar-jay, as we all know it.

WILLIS: All right, Kathryn.

FINNEY: And Wal-Mart and all the other great discount stores.

WILLIS: A ton of names. Thank you for being with us today and brining us some clothes. We appreciate it.

FINNEY: Thank you.

(END VIDEOTAPE)

WILLIS: You can hear much more about the impact of this week's news on your money, YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week right, here on CNN. And you can catch us on HEADLINE NEWS every Saturday and Sunday at 3:30 p.m. Eastern Time. Don't go anywhere your top stories are next in the CNN NEWSROOM. Have a great weekend.

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